Between benefit and requirement

Economic efficiency, flexibility and customer orientation

Banks attach importance to the quality of their services. In addition, cost-effectiveness, flexibility and customer orientation play an important role in the provision of services.

It has been observed for a long time that the complexity of the SAP–Applications in Banks is constantly increasing. This inevitably also increases the demands on their Maintenance, support and further development to the so-called Application Management.

To meet these, the Outsourcing of application management as an option into the field of view of the Banks moved into the spotlight. The challenging conditions in the financial sector make "Make or Buy" to a strategic issue.

The majority of Banks is ready to take over parts of the application management of its SAP-environment to qualified service providers. At the same time, there is reluctance, which is linked to high demands on the service provider. These are the findings of the latest PAC study on trends in the SAP–Application Management in Banks.

Increasing cost pressure

One important trigger for the increasing interest in Application Management Services is the pressure currently being exerted by competition, the uncertain situation in the financial markets, rising Costs and regulatory requirements on many Banks burden. It inevitably leads to adjustments in theIT-value chain, which will also bring about changes in the IT-Organization and decisions about "Make or Buy" go hand in hand.

Cost pressure and regulatory requirements would have an increasing impact on the business. Within the IT-organization is responding by rethinking all processes and sourcing strategies, according to a managing director at the IT-Daughter of a Bank.

Market analyses by PAC confirm the high significance of Application Management Services in the banking industry. Financial Institutions give in Germany for application-related IT-services already spend 1.5 billion euros today.

About one-third of the expenditure goes into services for the Application Management, so the Maintenance, support and further development of software applications.

PAC forecasts that spending on external services will increase Application Management services will increase by around three percent annually in the medium term. While Banks first and foremost the Management from Applications for generic processes, today it is increasingly also industry-specific applications that support complex, business-critical processes. These include the software applications from the SAP for Banking solution portfolio.

Motives for outsourcing

The PAC study has brought to light three main motives that have led to the outsourcing of application-related tasks in the SAP-environment ("Buy"):

• Cost savings through efficient service provision
• Focus on core business and innovations
• Complementing limited capacities (knowledge and resources) and minimizing risks

The high IT-expenditures in financial institutions inevitably lead to measures to reduce the Costs to optimize. For reasons of economic efficiency, the following must Banks The question arises as to whether it will be possible at all in the future to maintain the capacities required for all disciplines and specializations internally.

Many Banks succeeds in reducing the expenditure for the Application Management and thus for the IT to lower. Research shows that qualified Application-Management-providers can achieve economies of scale and synergies.

The increased use of tools and methods for recurring activities, for example, increases the degree of automation and standardization of services, thus avoiding frictional losses and achieving savings.

Banks are faced with the challenge of dealing with IT-The aim is to respond to the changed conditions in the financial sector by implementing measures related to the financial sector. These include innovation projects that help to improve the quality of the Applications and supported processes.

With the help of modern application landscapes Banks better able to respond to market changes. Collaboration with service providers therefore offers them the opportunity to improve internal IT-to relieve employees of repetitive tasks so that they can concentrate on strategic tasks related to the core business and innovation topics.

The complexity of the SAP–Applications and the range of SAP-related topics are steadily increasing. Banks see in the integration of external SAP-specialists the possibility to SAP-issues better and to minimize default risks.

Thus, for the Maintenance from SAPbank applications, for example, special knowledge of the industry-specific SAP-modules, software versions and interfaces are necessary, which can be used within a Bank often cannot be fully covered. Also the adjustment of the SAP-bank applications to the individual needs of the BanksThe customizing of the system requires special knowledge.

As far as default risks are concerned, a service provider's focus often enables it to respond more quickly to Error and to resolve them within a short time. The response time is also usually contractually defined. The risk that delayed problem resolution, for example in the event of an application failure, will cause incalculable follow-up costs is reduced.

Clear definition of tasks and distribution of roles

The PAC trend study shows that the majority of the ITdecision-makers have a clear idea of the positive benefits of Application Management services. At the same time, they are cautious and attach conditions to cooperation with a service provider that relate to the distribution of tasks, process responsibility and investments on the part of the service partner.

Specifically, the interview partners address the Quality assurance and process sovereignty as internal responsibilities ("make"). Banks want to ensure that the quality of the Applications the high demands of a Bank does justice to the Quality assurance at Application Management make internally.

Also the sovereignty over critical Business processes would like the ITThe majority of the decision-makers must be anchored internally. A precise description of the tasks and role distribution within the framework of requirements management is indispensable for this. This also helps to ensure independence from the service provider in the context of "buy" decisions.

For example, it is possible to initially perform only routine activities such as pure software maintenance (application maintenance as part of the Application Management) and/or to hand over recurring tasks such as ticket processing to a service provider.

In this way, strategic and Management-In any case, tasks that are relevant to the company and that involve special technical and process knowledge should be left in-house.

Service provider profile

The PAC trend study makes it clear that the requirements of the Banks to a service provider in the SAP-Application-management are high. There is a consensus that the consultants used, in addition to SAP-In order for a service provider to deliver on its value proposition, it is essential that the customer has the necessary banking expertise.

Important are the Banks strategic pre-investments, for example, in knowledge building and ongoing knowledge deepening as a basic prerequisite for working with a service provider in the longer term.

Continuity and flexibility on the part of the consulting team as well as transparent pricing are also desired.

Conclusion

Changed framework conditions in the banking industry lead to the adjustment of the IT-value creation. In this area of tension, the Financial Institutions can't help but consider the options in the Application Management more intensively as part of their sourcing strategy.

The PAC study highlights the trend toward more "buy" in the Application Management. There is interest in cooperation with qualified Application-Management-service providers. At the same time, the Banks exactly which application-related tasks they leave in-house ("Make") and which they entrust to an external partner ("Buy").

In the interest of more intensive cooperation in the Application Management should be Banks and service providers must be prepared to move toward each other and to optimally coordinate wishes and requirements.

Eike Bieber is part of PAC's Financial Services team. Her focus is the Banks- and insurance industry in Germany and the Switzerland. She is also responsible for topics related to SAP Services. In addition, Eike Bieber coordinates part of PAC's Marketing and Communication Services.

Jörg Petersen has been a member of the Executive Board at Innobis since 2004. IT- and SAP-Consulting for Banks and financial services provider. Petersen already laid in the Study his focus of interest on the Finance and information technology and worked in the financial services sector. He held leading positions in the areas of principle, controlling and central tasks. In 1997, he moved to the SAP-Consulting Business.